Water Board weighs 57% rate hike

The five-year increase would cover operating costs and help refinance $100 million in bonds

Water bills would go up about 57 percent over the next five years under a proposed rate schedule that the Honolulu Board of Water Supply will consider next month.

Clifford Lum, Water Board manager and chief engineer, told members of the City Council yesterday that the board has been operating in the red for the past four years.

And as revenues have remained flat, operating expenses have increased, he said.

"Our operating expenses are no longer covered by our annual incoming revenues. We need to increase our rates in order to continue to provide the service and also provide for the necessary infrastructure to continue to provide water to our customers," Lum told a joint meeting of the Budget and Public Works committees.

The quasi-independent Water Board met with them to discuss a proposed Council resolution asking for a delay in rate hikes. Some councilmembers do not want the rates to change until the city auditor completes an audit of the Water Board's management. The board does not need permission from the city to raise rates.

If approved, rates would go up 13 percent in October, 12 percent next year, 10 percent in 2008, 8 percent in 2009 and 5 percent in 2010.

The current two-month bill for a typical residential customer is about $49.72. Under the proposal, the typical two-month bill would go up to $56.18 or by $3.23 a month on Oct. 1, and by the end of the five-year schedule, the typical two-month bill would climb to about $78.49.

If approved, the rate increase is expected to bring in an additional $57 million in revenue over the life of the five-year schedule.

The Board of Water Supply directors meet May 15 at 2 p.m. in the board meeting room for a public hearing on the proposed rate increase, followed by a vote on the proposal.

The last time the quasi- independent agency raised rates was in 1995.

Lum said that if the board had gone with "one massive increase, (it) probably would not go over very well given the economic climate. We instead decided to take on an extended five-year schedule where we can flatten it, make it more affordable, if you will, to our ratepayers."

He also said that the board wants to get to the point after the schedule is complete where it would only need to implement cost-of-living increases.

The rate increase, he said, is also necessary for a stronger credit rating so that the board is able to refinance $100 million in bonds at a better interest rate, which would result in savings for ratepayers.

Yesterday, the Budget Committee gave preliminary approval for the board to issue $235 million in bonds for a long list of construction projects.

But some councilmembers were worried about the impact the rate increases would have on farmers, and some questioned what happened to the large cash surplus the board accumulated several years ago.

Lum told them that agricultural water users will not see their rates go up any higher than residential customers; the board has used its cash reserves over the past four years to help pay increasing costs for operating expenses, he said. The surplus also financed capital improvement construction projects with cash.

"There was a major push in 2001 through 2003 where a lot of that money was used to cash-fund a lot of the CIP and repair and replacement projects," Lum said.

In 1998 the board's carryover funds climbed to $75 million.

Lum said after the meeting that the board should have at least $25 million in reserves, but currently it has about half that amount.

The two committees deferred taking action on a resolution, even though some said the audit could lead to recommendations that could help to stave off a rate increase.

Councilman Gary Okino said such a resolution -- which is only advisory -- is unnecessary.

"I think they really need to set their rates. There are so many things that depend on them setting their rates," Okino said.